TREASURIES-Prices gain on North Korean concerns

Reuters Staff

3 Min Read

(Adds next week's inflation data, updates prices)
* North Korean fears pauses bond sell-off
* Treasury yield curve flattest since 2007
By Karen Brettell
NEW YORK, Sept 22 (Reuters) - U.S. Treasury prices gained on
Friday on global concerns about North Korea after it said it
might test a hydrogen bomb over the Pacific Ocean, and as
investors closed positions before the weekend.
North Korean leader Kim Jong Un promised on Friday to make
U.S. President Donald Trump, whom he called "mentally deranged,"
pay dearly after Trump warned he would destroy the country if it
threatened the United States and its allies.
Kim's statement halted a bond sell-off sparked by the U.S.
Federal Reserve taking a more hawkish tone than investors had
expected at its September meeting, which concluded on Wednesday.
"There's much less selling in advance of the weekend," said
Jim Vogel, an interest rate strategist at FTN Financial in
Memphis, Tennessee. "This has the initial appearance of not
going home with any particular rate views when North Korea and
the White House are in a bigger spat than they have been."
Benchmark 10-year notes gained 7/32 in price to
yield 2.26 percent, down from 2.28 percent on Thursday.
The U.S. Treasury yield curve flattened to its lowest levels
since late 2007 overnight, before retracing in the U.S. session,
as traders prepared for the likelihood that the U.S. central
bank will raise rates in December.
New economic projections released after the Fed's meeting
showed 11 of 16 officials see the "appropriate" level for the
federal funds rate, the central bank's benchmark interest rate,
at 1.25 percent to 1.50 percent by the end of 2017, one-quarter
of a point above the current level.
That view comes despite still-sluggish inflation that many
investors have viewed as likely to crimp the Fed's ability to
tighten monetary conditions.
"There is not a lot of faith that yields can be sustainably
higher," said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York.
Intermediate-dated debt is highly sensitive to interest rate
increases, while longer-dated bonds are influenced by inflation
expectations.
"The problem comes from the long-term implications of their
moves," Kohli said. "What does that say about growth and
inflation in the long run? The market's not very optimistic
about that."
The yield curve between five-year notes and 30-year bonds
flattened to 91.1 basis points, the lowest level
since late 2007, before steepening back to 92.3 basis points.
Personal income data due next Friday will be the next major
focus for signs of whether inflation is picking up.
(Editing by Meredith Mazzilli and Richard Chang)
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